But the deal also drew the ire of local software vendors, as well as
government officials who said that Beijing ignored a January 1, 2003, Chinese
procurement law. When a local product is available, it's supposed to receive
preference over foreign products.

On Nov. 30, Beijing canceled the order.

A Microsoft spokesperson confirmed the reports to
internetnews.com. "We're still in talks with Beijing," he said.

In a written statement, Microsoft applauded Beijing's efforts to move
all of its users onto licensed software and said it would hang in there
during negotiations. At issue is how the Government Procurement Law defines
foreign companies. According to Xinhua, Beijing's purchase was made through
Microsoft's local reseller, Beijing Centre Electronic Technology.

"We will actively support and accelerate the commercial negotiations
with the municipal government and are committed to continuing our support of
the development of the Chinese software industry and economy," the statement
read.

As foreign governments evaluate moving to open source software,
Microsoft is fighting the threat on several fronts. Its aggressive "Get the
Facts on Windows and Linux" campaign
publishes white papers analyzing total cost of ownership for the two.

In November, Microsoft CEO Steve Ballmer warned a group of Asian leaders
that open source software could be subject to trademark and patent
litigation. Ballmer was addressing the Government Leaders Forum in
Singapore.

During the same address, he touted Redmond's partnerships with the
Chinese government to help increase access to technology and technology
skills by distributing an IT skills curriculum on DVDs. Microsoft is
supporting the establishment of three computer labs in China's 31 provinces,
with networked PCs and high-speed Internet access to serve both teachers and
students.